When purchasing real property, purchasers often require or desire to use financing. During this process, the lender often acquires a lien on the property. Liens, usually in one of two forms, enable the lender in the case of default on repayment of the loan, to either take possession and then sell the property in order to repay the loan amount or to force a sale of the property with first rights to the proceeds of the sale up to the amount owed on the loan. In either case, this right is referred to as a lien.
There are also varying degrees of liens. The first or primary lender on the property has a first lien or a first position. A second mortgagee has a second lien or a second position. Subsequent liens are prioritized according to a tertiary position, usually in order of recordation. A lender higher in priority is a senior lender with respect to a lender lower in priority. A lender lower in priority is a junior lender with respect to a lender higher in priority.
When a sale of a property is made or forced pursuant to the rights of one lender's lien, other lenders having liens on the same property have a right of repayment in the specified order of priority. So, for example, a second loan may be taken out on a property in order to make home improvements on the property, and the corresponding secondary lender may place a secondary lien on the property. In this case, the first mortgage lien has first position and the second mortgage lien has second position. If either loan defaults, the property may be sold and the first loan would be paid off prior to the second loan. Any remainder would be used to pay down the second loan, any remainder thereafter would pay off tertiary positions, and any final remainder would be returned to the mortgagor.
Second and tertiary position lien holders (hereinafter secondary position lenders or secondary position lien holders) are often not as well-equipped to handle potential defaults as a first position lien holder. Secondary position lenders may have limited monitoring resources, or may roll their individual loans into a larger portfolio of loans, which makes monitoring the loans individually more complicated and time-consuming. Often, loans on properties are sold, traded or grouped, such that keeping track of liens and potential defaults on properties under which a secondary lender would be entitled to some portion of foreclosure sale proceeds becomes a cumbersome administrative task.
When one lien holder initiates a foreclosure proceeding, the other lien holders may be notified. Notification by mail of the fact of foreclosure proceedings on a property may be the first and only indication of such proceedings intended to reach a secondary lien holder. Due to limited monitoring capability, a secondary lien holder may not learn of these foreclosure proceedings in a timely fashion and therefore may be unable to take appropriate measures to enforce its lien. Where the secondary lien holder is a corporation, internal delays within the corporation after receipt of the notification may likewise prevent the corporation from taking protective action. Also, notification by mail may be a problem because the address may not be current or valid.
In a typical scenario, while the mortgagor may be delinquent in making payments to a primary lender, secondary or junior lenders may still be receiving timely payments. Many secondary lenders do not begin researching potential foreclosure issues until there has been a substantial delinquency, e.g., 60 or 90 days, in repayment of their own loan. Thus, the secondary lender whose policy it is to begin researching at the onset of a 60 or 90 day delinquency may find that the primary lender has already initiated, or perhaps even resolved foreclosure proceedings on the property.
Therefore, there exists a problem in the industry whereby secondary lien holders often miss opportunities to collect on foreclosure proceeds after a first position or other position lender initiates foreclosure proceedings. The other lenders may know nothing about these proceedings or the potential distress event until after the foreclosure proceedings have occurred or until shortly before they have occurred. What is needed in the industry is an automated method and system for monitoring events associated with a loan that are symptomatic of properties at risk of foreclosure, well in advance of actual foreclosure.